What’s behind those higher rates at Time Warner Cable…

February 23, 2010

Last fall’s public stand-off between Time Warner Cable, Inc. (TWC) and News Corp. (which owns the Fox broadcast network) involved a public spat over fees, but — as consumers know — regardless of which company was —right, consumers— bills went up. And if the prediction in this article is correct, annual hikes of about 5% may become a tradition.

Shareholders, meanwhile, presumably caught the headline at the end of January that Time Warner’s EPS guidance for FY 2010 would likely be lower than analysts expected.

But besides the increased programming costs, investments in technology, and accounting strategies to replace advertising shortfalls, there may be other reasons why those cable bills are climbing.

While reviewing the 10-K that Time Warner filed last Friday, it reminded us that we hadn—t yet posted about the updated employment agreements between it and Chief Operating Officer, Landel Hobbs (see here), or the new agreement with Senior Executive Vice President and Chief Financial Officer, Robert Marcus (see here).

The company did disclose the headlines of the new agreements in an 8-K filed on January 7, 2010, but it waited until Friday’s 10-K to file the actual agreements.

The odd thing about Hobbs’ raise is that, according to the proxy filed April 20, 2009, his 2008 employment agreement wouldn—t have expired until January 31, 2011. That agreement paid him a base salary of $900,000, an annual discretionary target bonus of 233% of his base salary (nearly $2.1 million), and a discretionary annual equity and other long-term incentive compensation award with a minimum target value of $3,000,000.

The new agreement took effect January 1, 2010 and has the same expiration date… January 31, 2011 as his former agreement. But now Hobbs gets a minimum annual base salary of $1,000,000 and an annual long-term incentive compensation with a target value of $3,650,000. The annual discretionary cash bonus remains at $2,100,000 (although now the number is specifically stated, rather than given as a percentage of his salary).

Marcus, on the other hand, was working under an employment agreement that dated back to August, 2005 and would have expired in 2008; however, it automatically renewed every month since neither party terminated it. The company had given Marcus raises, of course. In addition to other types of compensation, as of last April Marcus’s base salary was $800,000, his annual discretionary target bonus was 175% of his base salary ($1.4 million), and his discretionary annual equity and other long-term incentive compensation award had a minimum target value of 225% of his base salary ($1,800,000).

The new agreement, which became effective January 1 and runs through December 31, 2012, states that Marcus will now get a minimum Base Salary of $900,000, an annual Target Bonus of $1,500,000, and an annual long-term incentive compensation with a target value of $3,100,000.

While executives surely appreciate a raise as much as the rest of us do, it’s probably a safe bet that investors and especially cable customers may be less enthusiastic about the new agreements.

Image source: The Baltimore Sun

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